Econ (GDP) Flashcards
What is non-market production?
value individuals create for themselves
What does more market production lead to higher GDP?
More market production leads to higher GDP not because more value is being created, but because we are better able to count it
What is underground economy?
Black market, or income not reported to the government
What is not counted towards GDP?
Free goods/information are not counted towards GDP but adds value
How does leisure and comfort of workers in 1947 compare to that of workers in 2006?
In 1947, average workers worked 40 hrs a week. In 2006, average workers worked 33 hrs a week.
Is increasing GDP a good thing? Why or why not? Explain.
Because GDP only roughly correlates with standard of living, increasing GDP is not necessarily a good thing, vice versa
What does the Bureau of Labor do monthly?
They conduct a survey to determine employment data.
What are the three groups that the Bureau of Labor classify people into?
1) Employed
2) Unemployed
3) Out of labor force
What is the Bureau of Labor’s definition of employed?
People who have worked at least an hour for pay in the last week
What is the Bureau of Labor’s definition of unemployed?
People not presently working, but actively searching for work
What is the Bureau of Labor’s definition of “not in labor force” (aka ‘out of labor force’)?
People who are neither employed nor unemployed are not in the labor force. This category includes retired persons, students, those taking care of children or other family members, and others who are neither working nor seeking work.
What is the formula for calculating unemployement rate?
(unemployed/labor force) x 100
In other words, (unemployed/(employed + unemployed)) x 100.
What is the formula for calculating labor force?
employed + unemployed
What is the formula for calculating labor force participation rate?
(labor force/adult civilian population) x 100
In other words (employed + unemployed)/(out of labor force + unemployed + employed) x 100
What are three types of unemployment?
1) structural unemployment
2) frictional unemployment
3) cyclical unemployment
What is structural unemployment?
There is mismatch between the skills that workers in the economy can offer and the skills demanded of workers by employers (also known as the skills gap).
What are two causes of structural unemployment?
Jobs no longer exists because of
1) innovations
2) changes in preferences for goods
How do innovations cause jobs to no longer exist? Name two ways.
1) Machines replace jobs
2) Changes in production
What type of employment is considered the most painful kind of employment?
Structural unemployment. Painfulness depends on ability of people to adjust and apply skills to new jobs
Which type of unemployment is referred to as “creative destruction”
Structural unemployment
Who is Schumpeter?
Joseph Schumpeter is well known for his theory explaining the activities that lead to economic growth in capitalist economies
What is frictional unemployment?
Transaction costs + info problems means it takes time to find the right job. Takes employers time to find right person.
Which type of unemployment is associated with the phrase “skills gap”?
Structural unemployment
Which type of unemployment is associated with the phrase “search time?”
Frictional unemployment
Is frictional unemployment always present in an economy? Why or why not? Explain.
Frictional unemployment is always present in a market economy. It is the price of freedom to use skills.
What is cyclical unemployment?
Unemployment due to changes in health of macroeconomy.
Name five kind of changes in health a macroeconomy can experience.
1) swings in business cycle
2) depression
3) recession
4) low aggregate demands
5) boom
What does underemployed mean? Name two characteristics.
A person who wants to work more hours OR is working in a field not realated to worker’s skills
What problem exists with the way U.S. officials count underemployment?
U.S. officials counts underemployed as employed and this makes economy look better than it is
What is inflation?
Decrease in value of money while there is an increase in prices
What is purchasing power?
The amount of goods and services an individual can buy
What is deflation?
greater purchasing power
What are price indexes?
Ratios that tell us about changes in the price level over time
What is consumer price index?
an index of the variation in prices paid by typical consumers for retail goods and other items
Why does CPI tend to overstate inflation?
Because improvements in quality increases the prices of good, mistaken for inflation, and find subtitutes
Why is expected inflation better than unexpected inflation?
Economics don’t consider expected inflation problems because they can plan ahead
Who are better off when there is inflation? Name 3 groups.
debtors, firms, government
Who is worse off when there is inflation?
savers
Who is unaffected by inflation?
owners of tangible goods
What is the formula for calculating inflation rate?
(this year’s price index - last year’s price index)/(last year’s price index) x 100
What are two ways to calculate the inflation rate?
The inflation rate can be calculated from either the CPI or the GDP deflator
What is debt to GDP ratio?
(gov. national debt)/(GDP) x 100
What are the characteristics money? (six)
widely accepted, durable, recognizable quality, portable, limited in supply, divisible
What are the functions of money?
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What is commodity money vs. fiat money?
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What is central vs. commercial banks?
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What is the purpose of the Federal Reserve, and why its “independence” important?
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What is fractional reserve banking?
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Why do changes in excess reserves lead to dramatic changes in the money supply?
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What are excess reserves?
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What are required reserves?
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Why are banks usually eager to lend excess reserves?
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What is the effect of an increase in the money supply (expansionary) on nominal and real interest rates? What is the effect of an decrease in the money supply (contractionary) on nominal and real interest rates?
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What is the effect of an increase in the money supply (expansionary) on aggregate demand, shown on an AD/SRAS graph? What is the effect of an decrease in the money supply (contractionary) on nominal and real interest rates?
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What is the effect of an increase in the money supply (expansionary) on inflation and output (look at the AD/SRAS graph) What is the effect of an decrease in the money supply (contractionary) on nominal and real interest rates?
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What is monetary policy
change the amount of excess reserves banks have
How does open market operations work to change the money supply?
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How does required reserve ratio (RRR) work to change the money supply?
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How does discount rate work to change the money supply?
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Define economic growth
An increase in productive capabilities
Explain the difference between long run economic growth and changes in business cycle
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Why does economic growth matter to the well-being, standard of living and quality of life of individuals?
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How do we measure economic growth?
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What are the fundamentals of economic growth?
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Why is increasing capital and productivity so important for economic growth?
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Show economic growth with a shift in SRAS, and then LRAS and PPF
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What is Austrian Business Cycle Theory?
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